scholarly journals Reward Value Coding Distinct From Risk Attitude-Related Uncertainty Coding in Human Reward Systems

2007 ◽  
Vol 97 (2) ◽  
pp. 1621-1632 ◽  
Author(s):  
Philippe N. Tobler ◽  
John P. O'Doherty ◽  
Raymond J. Dolan ◽  
Wolfram Schultz
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Mean Value ◽  
Expected Value ◽  
Individual Risk ◽  
Functional Magnetic Resonance ◽  
Coding Regions ◽  
Monetary Rewards ◽  
Expected Values ◽  
Value Coding

When deciding between different options, individuals are guided by the expected (mean) value of the different outcomes and by the associated degrees of uncertainty. We used functional magnetic resonance imaging to identify brain activations coding the key decision parameters of expected value (magnitude and probability) separately from uncertainty (statistical variance) of monetary rewards. Participants discriminated behaviorally between stimuli associated with different expected values and uncertainty. Stimuli associated with higher expected values elicited monotonically increasing activations in distinct regions of the striatum, irrespective of different combinations of magnitude and probability. Stimuli associated with higher uncertainty (variance) elicited increasing activations in the lateral orbitofrontal cortex. Uncertainty-related activations covaried with individual risk aversion in lateral orbitofrontal regions and risk-seeking in more medial areas. Furthermore, activations in expected value-coding regions in prefrontal cortex covaried differentially with uncertainty depending on risk attitudes of individual participants, suggesting that separate prefrontal regions are involved in risk aversion and seeking. These data demonstrate the distinct coding in key reward structures of the two basic and crucial decision parameters, expected value, and uncertainty.

scholarly journals Risk aversion and risk seeking in multicriteria forest management: a Markov decision process approach

2017 ◽  
Vol 47 (6) ◽  
pp. 800-807 ◽  
Author(s):  
Joseph Buongiorno ◽  
Mo Zhou ◽  
Craig Johnston
Keyword(s):  
Risk Aversion ◽  
Markov Decision Process ◽  
Decision Process ◽  
Weighted Average ◽  
Basal Area ◽  
Risk Attitude ◽  
Expected Value ◽  
Process Models ◽  
Risk Seeking ◽  
Markov Decision

Markov decision process models were extended to reflect some consequences of the risk attitude of forestry decision makers. One approach consisted of maximizing the expected value of a criterion subject to an upper bound on the variance or, symmetrically, minimizing the variance subject to a lower bound on the expected value. The other method used the certainty equivalent criterion, a weighted average of the expected value and variance. The two approaches were applied to data for mixed softwood–hardwood forests in the southern United States with multiple financial and ecological criteria. Compared with risk neutrality or risk seeking, financial risk aversion reduced expected annual financial returns and production and led to shorter cutting cycles that lowered the expected diversity of tree species and size, stand basal area, stored CO2e, and old-growth area.

scholarly journals OPTIMAL OUTCOME SHARING WITH A CONSORTIUM OF CONTRACTORS

2015 ◽  
Vol 22 (5) ◽  
pp. 655-665 ◽  
Author(s):  
S. Mahdi HOSSEINIAN ◽  
David G. CARMICHAEL
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Risk Averse ◽  
Optimal Outcome ◽  
Original Solution ◽  
Project Outcome ◽  
Risk Neutral ◽  
Current Practices

Where a consortium of contractors is involved, there exist no guidelines in the literature on what the outcome sharing arrangement should be. The paper addresses this shortfall. It derives the optimal outcome sharing arrangement for risk-neutral and risk-averse contractors within the consortium, and between the consortium and a risk-neutral owner. Practitioners were engaged in a designed exercise in order to validate the paper’s propositions. The paper demonstrates that, at the optimum: the proportion of outcome sharing among contractors with the same risk-attitude should reflect the levels of their contributions; the proportion of outcome sharing among contractors with the same level of contribu­tion should be lower for contractors with higher levels of risk aversion; a consortium of risk-neutral contractors should receive or bear any favourable or adverse project outcome respectively; and the proportion of outcome sharing to a con­sortium of risk-averse contractors should reduce, and the fixed component of the consortium fee should increase, when the contractors become more risk-averse or the level of the project outcome uncertainty increases. The paper proposes an original solution to the optimal sharing problem in contracts with a consortium of contractors, thereby contributing to current practices in contracts management.

scholarly journals Evolution of social learning when high expected payoffs are associated with high risk of failure

2011 ◽  
Vol 8 (64) ◽  
pp. 1604-1615 ◽  
Author(s):  
Michal Arbilly ◽  
Uzi Motro ◽  
Marcus W. Feldman ◽  
Arnon Lotem
Keyword(s):  
High Risk ◽  
Social Learning ◽  
Risk Aversion ◽  
Individual Risk ◽  
Individual Experience ◽  
Agent Based ◽  
Risk Of Failure ◽  
Expected Payoffs ◽  
Maladaptive Behaviours ◽  
Optimal Behaviour

In an environment where the availability of resources sought by a forager varies greatly, individual foraging is likely to be associated with a high risk of failure. Foragers that learn where the best sources of food are located are likely to develop risk aversion, causing them to avoid the patches that are in fact the best; the result is sub-optimal behaviour. Yet, foragers living in a group may not only learn by themselves, but also by observing others. Using evolutionary agent-based computer simulations of a social foraging game, we show that in an environment where the most productive resources occur with the lowest probability, socially acquired information is strongly favoured over individual experience. While social learning is usually regarded as beneficial because it filters out maladaptive behaviours, the advantage of social learning in a risky environment stems from the fact that it allows risk aversion to be circumvented and the best food source to be revisited despite repeated failures. Our results demonstrate that the consequences of individual risk aversion may be better understood within a social context and suggest one possible explanation for the strong preference for social information over individual experience often observed in both humans and animals.

Cutoff Threshold Decisions for Classification Algorithms with Risk Aversion

2021 ◽  
Author(s):  
Andrea C. Hupman
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Classification Algorithm ◽  
Classification Algorithms ◽  
Risk Averse ◽  
Optimal Cutoff ◽  
Data Set ◽  
Risk Neutral ◽  
Bayes Algorithm ◽  
Cutoff Threshold

Classification algorithms predict the class membership of an unknown record. Methods such as logistic regression or the naïve Bayes algorithm produce a score related to the likelihood that a record belongs to a particular class. A cutoff threshold is then defined to delineate the prediction of one class over another. This paper derives analytic results for the selection of an optimal cutoff threshold for a classification algorithm that is used to inform a two-action decision in the cases of risk aversion and risk neutrality. The results provide insight to how the optimal cutoff thresholds relate to the associated costs and the sensitivity and specificity of the algorithm for both the risk neutral and risk averse decision makers. The optimal risk averse threshold is not reliably above or below the optimal risk neutral threshold, but the relation depends on the parameters of a particular application. The results further show the risk averse optimal threshold is insensitive to the size of the data set or the magnitude of the costs, but instead is sensitive to the proportion of positive records in the data and the ratio of costs. Numeric examples and sensitivity analysis derive further insight. Results show the percent value gap from a misspecified risk attitude increases as the specificity of the classification algorithm decreases.

Young adults’ subjective and objective risk attitude in financial decision making

2018 ◽  
Vol 10 (3) ◽  
pp. 274-294 ◽  
Author(s):  
Andreas Oehler ◽  
Matthias Horn ◽  
Florian Wedlich
Keyword(s):  
Older Adults ◽  
Young Adults ◽  
Risk Aversion ◽  
Real World ◽  
Risk Attitude ◽  
Similar Degree ◽  
Content Type ◽  
Financial Decisions ◽  
Objective Risk ◽  
Subjective Risk

Purpose The purpose of this paper is to derive the determinants of young adults’ subjective and objective risk attitude in theoretical and real-world financial decisions. Furthermore, a comparison of the factors that influence young adults’ and older adults’ risk attitude is provided. Design/methodology/approach The paper relies on an experimental setting and a cross-sectional field study using data of the German central bank’s (Deutsche Bundesbank) PHF-Survey. Findings Young adults’ objective risk aversion is not constant but increases with stake sizes. Furthermore, young adults’ subjective risk attitude is a better predictor for their objective risk attitude than a set of commonly employed socio-demographics and economics like age or income. Moreover, young adults’ subjective risk attitude works as a mediator for the influence of their investable financial wealth on their objective risk attitude. Although young adults’ subjective risk attitude shows a gender effect, the influence of young adults’ gender on their objective risk attitude decreases with higher stake sizes. Compared to older adults, young adults generally show a similar degree of subjective risk aversion. However, due to stronger financial restrictions, young adults show a higher degree of objective risk aversion. Originality/value Although individuals’ financial outcomes depend on the financial behavior established in young adulthood, there is no study that simultaneously analyzes the determinants of young adults’ subjective and objective risk attitude in real-world financial decisions with a focus on young adults as a separate age group. The paper closes this gap in literature and additionally provides a comparison of the subsamples of young adults and older adults. The analysis in this paper reveals that young adults’ lower engagement in financial markets is primarily driven by their tight budget and not by a fundamental different subjective risk attitude.

Risk Aversion and Unemployment in an Open Economy

2000 ◽  
Vol 49 (2) ◽  
Author(s):  
Pia Weiß
Keyword(s):  
Risk Aversion ◽  
Open Economy ◽  
Small Open Economy ◽  
Risk Behaviour ◽  
Terms Of Trade ◽  
Individual Risk ◽  
Risk Averse ◽  
Search Frictions ◽  
Long Run ◽  
The Impact

AbstractThe paper analyses the impact which risk aversion has on a small open economy characterised by search frictions on the labour market. It is shown that the long-run qualitative effects caused by a terms-of-trade shock are independent of individual risk behaviour. As far as quantitative aspects are concerned risk aversion always leads to higher equilibrium employment; however the increase in unemployment due to a price shock is the higher the more risk-averse individuals are.

Testing the Effect of Risk Attitude on Auditor Judgments Using Multiattribute Utility Theory

1993 ◽  
Vol 8 (1) ◽  
pp. 91-110 ◽  
Author(s):  
Timothy A. Farmer
Keyword(s):  
Risk Aversion ◽  
Internal Control ◽  
Utility Theory ◽  
Risk Preference ◽  
Risk Attitude ◽  
Test Results ◽  
Multiattribute Utility ◽  
Multiattribute Utility Theory ◽  
Auditor Judgments ◽  
The Individual

The scaling constant of multiattribute utility functions derived for each of 15 practicing auditors was used to measure risk attitude for the subjects. The risk preference or risk aversion indicated by this metric allowed categorization of the auditors to test for an effect of risk attitude on audit judgments. The sample showed both risk aversion and risk preference among the auditors. The correlations among auditor evaluations of hypothetical internal control compliance test results were generally high and were different for audit seniors than for audit managers. Risk attitude was not found to explain the differences across rank nor the individual differences in consensus.

German farmers’ acceptance of subsidized insurance associated with reduced direct payments

2019 ◽  
Vol 79 (3) ◽  
pp. 408-424 ◽  
Author(s):  
Johannes Möllmann ◽  
Marius Michels ◽  
Oliver Musshoff
Keyword(s):  
Public Support ◽  
Risk Attitude ◽  
Multinomial Logit Model ◽  
Negative Influence ◽  
Individual Risk ◽  
Farm Income ◽  
Complete Replacement ◽  
Content Type ◽  
Direct Payments ◽  
The Right

Purpose The outstanding reform of the Common Agriculture Policy allows for changes regarding its most criticized component, the direct payment scheme. The purpose of this paper is to investigate farmers’ acceptance of subsidized whole farm income insurance (WFI) and single-crop, multi-peril revenue insurance (RI) that are associated with a reduction of direct payments. Design/methodology/approach By applying a generalized multinomial logit model on data of a discrete choice experiment, German farmers’ preferences, expressed as their willingness to pay (WTP), for WFI and RI are revealed. Findings The results show a positive WTP for WFI and RI. The average farmer has a higher WTP for WFI than for RI. By increasing the coverage level, the negative influence of a reduction of direct payments on WTP for insurance can be compensated. Individual risk attitude and assessed importance of direct payments for the farm business show a statistically significant influence on the WTP. Practical implications The results suggest that, even if direct payments were abolished in order to subsidize WFI or RI, German farmers’ WTP for both insurance products would remain positive. However, to finally assess whether subsidizing insurance is the right means of providing public support, it is necessary to assess whether farmers’ WTP meets the costs for such an insurance scheme. Originality/value To the authors’ knowledge, this is the first study investigating German farmers’ WTP for WFI and RI using an experimental approach by explicitly considering the partial to complete replacement of direct payments by subsidized insurance.

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